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Local banks in India were requested by the country’s Supreme Court to halt providing services to crypto exchanges and businesses, effectively preventing local crypto trading platforms from supporting fiat-to-bitcoin trades.

The abrupt and unforeseen ban on banks dealing with digital assets such as bitcoin and ether, the native cryptocurrency of the Ethereum blockchain protocol, forced local crypto exchanges to pivot from fiat-supporting trading platforms to crypto-only exchanges.

Pushing Investors to the Black and OTC Market

The government of India has not provided a clear reason to support its ban on crypto trading. While local financial authorities have often resorted to the money laundering concerns surrounding digital assets, money laundering prevention is not sufficient to justify an outright ban on crypto trading because doing so leaves the sector even more vulnerable to criminals and large-scale crime syndicates.

Japan, despite its status as a leading economy and a rapidly growing haven for technology startups, has one of the largest active crime syndicates in the world called the Yakuza, which houses more than 100,000 members.

Earlier this year, through the report of Mainichi Shimbun, a mainstream media outlet in Japan, local authorities were made aware of the utilization of digital assets by the Yakuza. Consequently, the Japanese government ordered the delisting of anonymous cryptocurrencies Monero, Zcash, and Dash, and tightened regulations on the crypto market to protect investors and prevent criminals from using digital assets to launder money.

If the Japanese government had taken the approach of the Indian government and left the crypto sector vulnerable to hacking attacks, money launderers, and crime syndicates, the issue of digital assets being utilized by criminals could have worsened. Hence, investors have started to question the actual intent behind the government of India’s ban on cryptocurrencies and whether it really is concerned about money laundering.

More investors started to express concerns regarding the ban as the Supreme Court of India reaffirmed the government’s ban on crypto trading, because it shoved out investors from a regulated market to a unregulated and unorganized peer-to-peer market that is vulnerable to various finance-related crimes.

In the peer-to-peer market, investors cannot receive any protection against spammers and potentially money launderers buying and selling cryptocurrencies to eliminate the trails of transactions initiated by crime syndicates and operators of illicit activities.

Technically, crypto exchanges in India are not banned as of July and as such, they are permitted to operate as crypto-only exchanges. Still, in order to trade bitcoin-to-ether or other crypto pairs, investors are required to purchase bitcoin or ether first, on a peer-to-peer marketplace like LocalBitcoins.

As seen by a chart provided by Coin Dance below, the volume of bitcoin on LocalBitcoins India significantly declined from late December to mid-2017. But, in June, upon the reaffirmation of the country’s ban on crypto trading by the Indian Supreme Court, the volume of bitcoin-to-Indian rupee began to surge again.

Local Exchanges are Worried

Local exchanges including Coindelta criticized the controversial decision of the government of India to place local investors at risk with a regulatory framework that does not consider or acknowledge the stance of the G20 and other leading economies on the matter.

“Earlier, a lot of these transactions were taken offline and completed, which led to a possibility of being robbed. Or even when it was online, you didn’t know who you were dealing with and there were chances that the deal could go awry,” Shubham Yadav, the co-founder of Coindelta, said.

Joseph Young is a finance and tech journalist based in Hong Kong. He has worked with leading media and news agencies in the technology and finance industries, offering exclusive content, interviews, insights and analysis of cryptocurrencies, innovative and futuristic technologies.